Monday, August 1, 2016

Another Plea to Offshore Account Tax Crimes (8/1/16)

DOJ Tax announced here another plea to offshore tax crimes.  The criminal information is here; the plea agreement with Exhibit A Statement of Facts is here.  The plea is to one count each of conspiracy (18 USC § 371) and tax obstruction (26 USC § 7212(a)), which have 5 year and 3 year, respectively, maximum incarceration period, so 8 years or 72 months maximum.  As usual , the Sentencing Guidelines will provide a lesser likely sentence.  Here are the key quotes:
Masud Sarshar, who owned and operated Apparel Limited Inc., a business that designed, manufactured and sold clothing and other apparel, signed a plea agreement admitting that he maintained several undeclared bank accounts at Bank Leumi and two other Israeli banks, both in his name and in the names of entities that he created.  For decades, with the assistance of at least two relationship managers from Bank Leumi and a second Israeli bank (Israeli Bank A), Sarshar hid tens of millions of dollars in assets in these accounts in an effort to conceal income and obstruct the Internal Revenue Service (IRS).  As alleged in the information, between 2006 and 2009, Sarshar diverted more than $21 million in untaxed gross business income to these undeclared bank accounts.  Between 2007 and 2012, Sarshar also earned more than $2.5 million in interest income from these accounts.  Sarshar omitted all of this income from his 2006 through 2011 individual and corporate tax returns and he failed to report his authority over and ownership of these bank accounts in false Reports of Foreign Bank and Financial Accounts (FBARs) that he submitted to the U.S. Department of Treasury. 
Sarshar signed a plea agreement to the charges in the information, agreeing to plead guilty and pay more than $8.3 million in restitution to the IRS.  If the court accepts the parties’ agreement, Sarshar will be sentenced to 24 months in prison.  In addition, Sarshar stipulated to a civil penalty in the amount of 50 percent of the high balance of his undeclared accounts to resolve his civil liability for not disclosing the existence of his Israeli bank accounts. 
“Mr. Sarshar stashed millions in secret foreign financial accounts in Israel and then sought to use these accounts to evade his U.S. tax obligations, seeking to cover his tracks along the way,” said Principal Deputy Assistant Attorney General Ciraolo.  “The message of this case is clear: There are no safe havens.  If you are concealing assets and income in undeclared offshore accounts – or are a banker, an asset manager or otherwise are assisting accountholders in such criminal conduct, your only viable option is to come forward and accept responsibility for your actions.  Those who continue to violate U.S. tax laws will be held accountable and pay a heavy price.” 
According to the information and statement of facts, Sarshar’s relationship managers at Israeli Bank A (RM1) and at Bank Leumi (RM2) visited him frequently in Los Angeles.  At his request, neither bank sent him account statements by mail, but rather, RM1 and RM2 provided Sarshar with his account information in person.  For example, RM2 loaded electronic copies of Sarshar’s Bank Leumi account statements on a USB drive, which she concealed in a necklace worn during her trips to the United States.  To further maintain the secrecy of his accounts, Sarshar’s meetings with RM1 sometimes occurred in Sarshar’s car.  RM1 and RM2 also used these visits to Los Angeles to offer Sarshar other bank products, including “back-to-back” loans.  Through back-to-back loans, which Bank Leumi made to Sarshar through its branch in the United States and which Sarshar collateralized with funds from his account at Israeli Bank A, Sarshar was able to bring back to the United States approximately $19 million of his offshore assets without creating a paper trail or otherwise disclosing the existence of the offshore accounts to U.S. authorities.  At the direction of RM1 and RM2, Sarshar also obtained Israeli and Iranian passports in an effort to avoid being flagged as a U.S. citizen by the compliance departments at both banks.  After receiving both new passports and still being flagged as a U.S. citizen by their compliance departments, RM1 and RM2 advised Sarshar to transfer his remaining funds to yet another Israeli bank, which he did in late 2011.
The news release says that Sarshar will be sentenced to 24 months pursuant to the parties' agreement.  The plea agreement states that it is a FRCrP 11(c)(1)(C) which is an agreement that "a specific sentence or sentencing range is the appropriate disposition of the case."  However, and not to be too picky, I wonder whether the actual wording would lock the judge into the sentence.  The agreement provides (emphasis supplied by JAT):
24.  Defendant and the USAO agree that, taking into account the factors listed in 18 U.S.C. § 3553(a)((1) - (7), the relevant sentencing guideline factors set forth above [in pars 22 (with calcs)] and defendant's cooperation pursuant to §5K1.1 of the Sentencing Guidelines, an appropriate disposition of this case is that the Court impose a sentence of 24 months imprisonment (the low end of level 17) * * * *.  
The use of "an" rather than "the" would seem to take it out of FRCrP 11(c)(1)(C), here, as to "the" appropriate disposition.  I wonder if that may be just a scrivener's error or whether a judge would impose the sentence accordingly anyway, whether or not bound.

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